Mount Gibson settles contract dispute

Mount Gibson Iron
has agreed to settle a $US114 million contract dispute with former customer Rizhao Steel by entering into two new long-term contracts.

A Chinese court ordered the privately owned Rizhao to pay Mount Gibson $US114 million on August 17 last year, as well as a 6 per cent interest charge from that date after the miner successfully sued the steelmaker for shirking its contractual obligations during the global financial crisis and refusing to accept shipments of iron ore.

But this time Mount Gibson is confident Rizhao Steel will comply with an agreement to purchase waste material from its Koolan Island deposit and iron ore from its Extension Hill project.

Mount Gibson said yesterday Rizhao Steel has agreed to pay $US82 million or $US48 a tonne for iron ore with less than 54 per cent iron content and high contaminant levels. “As a consequence, Mount Gibson will realise near-term value for material that had been categorised as waste," UBS analyst Glyn Lawcock said.

A spokesman for Mount Gibson said yesterday the company had sought an up-front payment of $15 million from Rizhao, as well as a premium to the spot price for the second contract covering 25 per cent of its Extension Hill production.

“Mount Gibson has sought a non- refundable deposit of $US15 million which is to be applied against sales. So there is some protection against non-performance from Rizhao," Mr Lawcock said.

Mount Gibson shareholder and its biggest customer, Shougang Concord, has also agreed to buy 1 million tonnes of waste material for $US47 million.

Mr Lawcock estimates the deals are worth around $US65 million to $US75 million or 6¢ a share.